Dudley says Fed must ‘forcefully’ push against headwinds

Federal Reserve Bank of New York President William C. Dudley said policy makers must “forcefully” push against economic headwinds as the U.S. has yet to show “any meaningful pickup” in momentum.

“The economy still needs the support of a very accommodative monetary policy,” Dudley, who is vice chairman of the Federal Open Market Committee, said today in the text of remarks for a speech in New York. “Improving economic fundamentals versus fiscal drag and somewhat tighter financial conditions are pulling the economy in opposite directions, roughly canceling each other.”

U.S. policy makers last week unexpectedly refrained from reducing their $85 billion in monthly bond buying, saying they need to see more signs of sustained labor-market gains. Chairman Ben S. Bernanke said on Sept. 18 the Fed will alter record accommodation based on “what’s needed for the economy” and not “let market expectations dictate our policy actions.”

Dudley said any decision to taper bond purchases shouldn’t be seen as a sign that the benchmark interest rate will be raised any sooner, and that the Fed might wait “a long time” to raise the rate after breaching its 6.5 percent unemployment threshold. Dudley has consistently supported the Fed’s easing policies.

Dudley, 60, said the economy is “slowly healing” and faces headwinds including “the large amount of fiscal drag” from tax increases and budget cuts, as well as the “tightening of financial-market conditions” that has occurred since May.

Bond Yields

Bernanke’s remarks earlier this year on the prospect for tapering sent bond yields as much as a percentage point higher. Yields on the benchmark 10-year Treasury note climbed as high as 2.99 percent on Sept. 5 from 1.93 percent on May 21, the day before Bernanke first outlined a possible timetable for a reduction in the asset purchases.

Treasuries rose today, pushing the yield on the 10-year note down two basis points, or 0.02 percentage point, to 2.72 percent at 9:47 a.m. in New York. The Standard & Poor’s 500 Index slipped 0.3 percent to 1,705.24.

Another regional Fed bank president, Atlanta’s Dennis Lockhart, today said U.S. monetary policy should focus on creating a more dynamic economy.

“Recently there appears to have been some slowing” in job creation, Lockhart, who next votes on policy in 2015, said in the text of a speech prepared for delivery in New York. Payroll gains have averaged just 148,000 a month the past three months, he said. Lockhart has also backed the Fed’s monthly bond purchases.